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27 Feb

My Big Fat Bonehead Trade

by

“Hi, Jason.  I want you to know that I love your service and I love being a part of the community you have created.  I am continuously learning new things from your teachings and from your lessons.  I am also learning a lot from my own trading.  And sometimes, it’s the hardest lessons that teach us the most.” ~ Sheila C.

My Big Fat Bonehead Trade

Guest post by Sheila C. – Back in August, I picked up some RGSE. I was rinsing and repeating, selling when it was up and buying again when it was down.  I even held through earnings because they had recently acquired Syndicated Solar and RGSE was going places.  And then I rinsed one time too many, buying close to the top in October.  We all know nothing goes up forever, and RGSE was at new highs, so guess what happened?  The stock fell and I was at a loss.

Of course I didn’t want to take the loss, so I bought more shares lower, thinking I would average down and ride it back up.  Well, over the next couple of months, the stock went down further or traded sideways.  So I held on because I didn’t want to take the now bigger loss after averaging down.  Another earnings call came around, and I got really excited because RGSE had completed the Syndicated acquisition and had just acquired Mercury Energy.  RGSE was hot (no pun intended) and was really coming up in the solar world.

Well, if you guessed that the stock went down yet again after earnings, you would be correct!  Again, RGSE offered no guidance because now the Mercury deal was not yet complete.  Over the next couple of months, my stomach just churned and churned as RGSE went down further and further.

I hit a 62% loss on this trade at its lowest point.  Because I went in so big in size, my small trading account was now down over 50%, but I still didn’t sell RGSE.  I didn’t sell it because 1) I believe in the company and felt I could wait it out and 2) My account was down over 50% and I didn’t want to realize that big of a loss.  But every day seeing all that red and the double digit loss in my account was gut wrenching and heartbreaking.  I could feel my hair turning gray and several new wrinkles showing up over this one stinking trade.

Since this trade was the majority of my account, I had no money to trade with while I held this one stock.  So I missed out on months of other opportunities.  In January, I got even on the trade, then I was up quite a bit, yet I still did not lock it up.  I felt that after holding it for so long, I wanted more than just a measly 10% out of it.  I got greedy.

Towards the end of January, with the market tanking, RGSE started going down again, along with everything else.  I didn’t want it to go red again on me, so I finally got out of with a $46 profit after commissions.

Now, we all know that armchair quarterbacking doesn’t fix anything.  But, playing the “shoulda woulda coulda” game can sometimes be enlightening.  So I analyzed the trade, and here is my list of things that I did wrong (there are probably others too!):

  1. Don’t buy the top – look at charts of several time frames before buying.  This seems obvious, but yet we do it time and time again.  We get excited and jump in a stock before we know the big picture and what’s really happening.
  2. “Rinse and Repeat” sometimes means to get up on a stock, lock in the win, and then apply the same process to the NEXT stock.  It DOES NOT always mean to keep buying the same stock.  Eventually the well runs dry.
  3. Preserve your capital. Establish a stop loss (mentally) and stick to it no matter what.  Take a small loss if needed but make sure you keep your money so you can trade another day.
  4.  Preserve your capital.  No, this is not a mistake.  If you fail to take a small loss at first, and the stock continues to fall, take the bigger loss and get out.  Do not hang on hoping it will come back.  Trading on hope is almost always disastrous.
  5. Do not average down.  You will compound your losses if the stock continues to fall.  Sometimes you can average down to trade out of a stock, but most times you end up losing more that you would have if you had taken the small initial loss.
  6. Do not play earnings.  Earnings are a crap shoot, and you never know which way it’s going to go.
  7. Do not go all in on one stock.  A wiser person than I once said you shouldn’t put all your eggs in one basket.  I didn’t listen, and when I tripped, all my eggs were smashed.  Manage your risk and trade your size accordingly.
  8. Do not buy large positions…go smaller to start.  The larger the position, the larger the profit IF the trade goes your way.  However, if the trade goes against you, a large position will hand you a large loss.
  9. Green is better than even, even is better than red.  I was deep in the red, got back to even, got up a few percentage points, and ended up back at even.  4 months in this trade and I made a whopping $46 after not taking my green when I was up.  Pigs get slaughtered, right?
  10. Don’t marry a stock.  I still like RSOL a lot, and I will play this stock again soon (hopefully a little better).  However, when you are swing trading, it is best not to marry the stock.  That’s an investment play, not a swing play.
  11. Don’t talk yourself into doing these things.  Sometimes, we are our own worst enemy.  We can talk ourselves into seeing the best chart ever just so we don’t have to lose any money on a trade.  Don’t do this…instead, talk yourself into trading your strategy.
  12. Plan your trade and trade your plan.  Have the discipline to execute your plan.  If you do not have a trading plan, I suggest you create one.  It’s easy to do and it will definitely help in your trading….IF you stick to it.

As you can see, I learned an awful lot from this trade.  I am sharing my story because maybe someone else can learn from my mistakes.  If so, the $46 was worth it.

Sheila C.

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6 Comments

  1. Smartinez729

    Nice read Sheila and goes right back to stick with the strategy, have a plan, rinse and repeat. Must embed the rules in our brains over and over and over again.

    Reply
    • Sheila C

      Thanks, appreciate it.

      Reply
  2. chaz888

    Thanks for sharing your personal experience, Sheila! Really excellent and welcome advice for a vocation that can become painful if you lack discipline.

    Reply
  3. Aaron_H

    Thanks for sharing Sheila, it’s easy to share the wins but takes much more courage to share the losses.

    Reply
  4. Patty Johnson

    I am printing this out and taping it to my laptop!

    Reply
  5. anuj

    very cool for you to share,. much appreciated.

    Reply

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